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Internet domain-name market in doldrums

| October 29, 2012 | 0 Comments


Just like its physical counterpart, the market for Internet real estate has been in the doldrums in recent years, especially if you are trying to sell a fancy address for millions of dollars.

On the Internet, all the priciest addresses are not in Pacific Heights or Manhattan’s Park Avenue – they’re in the dot-com zone, as in Sex.com, which sold for a record $13 million in 2010, and Fund.com, which sold for nearly $10 million in 2008.

So far in 2012, the biggest reported domain name sale has been only $1 million – for PersonalLoans.com. One anonymous domain name investment group is trying to change that. It’s offering the domain California.com for sale and asking $3.5 million – although DomainHoldings, the company representing the owners, expects to get even more for it.

“We have four bidders that are in the seven figures already,” said DomainHoldings executive Monte Cahn. The company plans to approach the state tourism bureau, large real estate companies, corporations with California in their name, and even media.

Speculation in domain names has been a popular and often profitable business since the mid-1990s, when most dictionary words and geographic names were registered. Generic words in the dot-com top-level domain can generate a lot of traffic because many Internet users, instead of searching on Google, simply type the topic they’re looking for into the URL bar of their browser, followed by “.com,” said Ron Jackson, editor of DNJournal.com, which reports on domain sales and the industry. Having a dictionary word or place word as a URL also tends to help a site show up high in Google results, he said.

Even if there’s no content at the website, investors can make money on high-traffic domains by “parking” them with a page full of “pay-per-click” advertising. But the same decline in online advertising payments that has hurt media companies has also hurt domain-name parkers, said Jackson, who is a “domainer,” or domain name investor, himself.

Potential blockbuster

Although California is a proper name, the sellers should not run into trademark difficulties, said attorney Brian A. Hall of Traverse Legal, a Michigan law firm that specializes in domain name disputes and “cyber-squatting.”

“I don’t know who would claim they’re the owner of California as a mark,” Hall said.

There’s a difference between cyber-squatting, which is illegal, and domain speculation, Hall said. “A cyber-squatter is somebody who registers, uses or traffics in a domain name that incorporates the trademark of another with a bad faith intent to profit,” he said. In other words, as long as you’re not infringing on someone else’s trademark, you’re free to buy and sell domains at a profit.

Can California.com become the blockbuster domain sale of 2012? It’s difficult to predict domain name prices because there are so few comparable sales, Jackson said. For one thing, many transfers of domain ownership happen privately. DNJournal.com only posts and verifies sales that buyers or sellers report to Jackson.

“What the public sees is just the tip of the iceberg,” Jackson said. “Because so much of the sales activity is off the radar, you don’t have that many comps.”

From what Jackson has seen mid-priced domain name sales are picking up, he said. There haven’t been many seven-figure deals in recent years, but Jackson believes that California.com could go for seven figures. Attorney Hall agrees.

Seizing on timing

Geographic dot-com names tend to do well, and it’s rare for state names to come up for sale, Jackson said. California.com in particular was registered by the current owners in 1994 and has never before been offered for sale, Cahn said.

A real estate magnate bought Denver.com for seven figures this summer, although the specific dollar amount was not disclosed. For shoppers looking for more of a bargain, Mississippi.net is being offered via domain broker SuperNiche for $40,000.

Jackson said that domainers are a colorful bunch, some of whom took advantage of timing, such as the initial availability of names and the dot-com bust, to become fabulously wealthy. The industry has its own eBay-like trading platforms, Sedo and Afternic.

It’s unknown how the business will fare as the Internet Corporation for Assigned Names and Numbers rolls out hundreds of new top-level domains. In addition to standards such as .com and .org, plus all the country codes like .us and .me, Icann is now allowing companies to set up their own top-level domains. For instance, Cisco has applied to use URLs ending in .cisco.

Domainers optimistic

In a Forrester Research report, analyst Jeff Ernst predicted that initially only large companies will take advantage of the new top-level domains, but that eventually even midsize companies will all have their own domain endings, leaving .com to smaller and less Internet-savvy firms.

But domainers are optimistic that the .com names they’ve invested in will hold their value. After all, even though Icann has introduced new domains over the years, such as .biz and .xxx, .com is still by far the most popular. According to VeriSign, out of the 240 million domain names registered, almost half – 103.7 million – are .coms.

Carrie Kirby is a freelance writer. E-mail: business@sfchronicle.com

Filed Under: Internet News

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